Economics – Price theory
Grade 8
This Photo by Unknown Author is licensed under CC BY
Remember:
Only Demand and Supply can
determine price
NOT the individual buyer or seller
Price Theory:
Demand and Supply and the
Market
The law of
demand
says:
Price (Demand & Supply Theory)
mand & Supply Theory)
Demand schedule for pineapples
• Demand: Is the quantity of a product
/ service that a consumer is prepared
to buy over a given period.
• At the price of R1 people will demand
900 pineapples
• At the price of R5 people will demand
100 pineapples
Price (R)
Quantity
1
900
2
700
3
500
4
300
5
100
The Demand Curve
5
Price
Task 1: Using the demand schedule
in the previous slide, draw the
demand curve for pineapples.
D
3
1
D
0
100
500
Quantity: Demand
Demand curve for pineapples
900
The demand curve shows that:
If the price of a product or service decreases, the demand will
increase
Consumers want to maximize their value for money and will buy
more if prices decrease.
This is a negative/inverted relationship between price and
demand.
When PRICE changes, it will bring only a MOVEMENT on the same
curve.
What is a
movement
on the
curve?
Watch this video:
The law of
supply says:
Price (Demand and Supply Theory)
Supply schedule for pineapples
• Supply: Is the quantity of a product /
service that producers are prepared to
sell over a given period
• At the price of R1, producers will only
want to supply 100 pineapples
• At the price of R5, producers will want
to maximize profits and supply 900
pineapples
Price (R)
1
2
3
4
5
Quantity
100
300
500
700
900
The Supply Curve
S
• Task 2: Using the supply
schedule in the previous slide,
draw your own supply curve
for pineapples
5
1
0
S
100
900
Quantity: Supply
If the price of a product or
service increases, the quantity
supplied will also increase
The supply
curve shows
that:
The producer wants to maximize
his profit and will produce more
if the market price rises
The higher the price, the higher
the supply = positive
relationship.
Movement
on the
supply curve
Equilibrium Price
• The point at which
the supply curve and
the demand curve
intersect indicates the
equilibrium price and
quantity in a market.
Watch this
video:
• Task 3: Draw both demand and supply curves
and find the equilibrium price
Market price /
Equilibrium
price
Demand & Supply Schedule
Price (R) Quantity
Demanded
1
900
2
700
3
500
4
300
5
100
Quantity
Supplied
100
300
500
700
900
Demand & Supply Curve
S
Price
Equilibrium
price and
quantity
P
D
S
Q
Quantity: Supply/Demand